(Xinhua)
Updated: 2008-02-18 08:52

LONDON -- British troubled bank Northern Rock is to be nationalized, British Finance Minister (Chancellor of the Exchequer) Alistair Darlilng announced Sunday.

"Northern Rock is to be brought under temporary public ownership," Darling said in a statement at a press conference at 11 Downing Street.

"The move meets the objective of protecting taxpayers' money. Private proposals did not deliver sufficient value for money," he said.

Neither of the two private proposals delivered "sufficient value for money to the taxpayer," Darling said.

Sir Richard Branson's Virgin Group and a rival in-house management team had both tabled offers for the lender.

"Myself and the prime minister feel this is the right option," the Chancellor said, adding "This is a temporary measure. The long-term future of the bank must lie in the private sector."

He said "market conditions will improve" and it would be wrong to "abandon the asset."

Darling said "confident taxpayer will get back every penny paid by the Bank of England (the central bank)."

Nationalization will be pushed though parliament with emergency legislation on Monday. Shares in Northern Rock will be suspended on Monday morning.

Under nationalization rules, shareholders will be offered compensation for their holding, at a level set by a Government-appointed panel.

Investors could begin legal action if they are unhappy with the amount offered.

The Treasury has reportedly already recruited the former boss of the Lloyd's of London insurance market, Ron Sandler, to lead Northern Rock. Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray.

Northern Rock got itself into financial difficulties last year because its business model left it ill-prepared for the global credit crunch.

It was forced to ask the Bank of England for emergency funding, triggering the first run on a British bank in nearly 150 years as worried savers queued outside branches to withdraw deposits.

British taxpayers are now subsidizing the bank in loans and guarantees to other lenders to the tune of about 55 billion pounds (US$108 billion).

This time last year, the bank was worth around 5.3 billion pounds. It is now worth just 375 million pounds.

Chairman of the Commons Treasury Select Committee John McFall said that he welcomed the Government's decision to nationalize, saying "They have explored every avenue. At the end of the day the biggest issue is the safeguarding of taxpayers' money. If nationalization saves that money, that has to be the correct step in the long term."

Liberal Democrat treasury spokesman Vince Cable said that the right decision had been taken, though "belatedly," and that the government should have walked away from the prospect of a private takeover some time ago.

Reacting to news of the nationalization, Robin Ashby from Northern Rock Small Shareholders slammed the government's decision and said he was "shocked" and "appalled."

He said "Britain's reputation as a financial center will be very badly damaged as a result of this decision."

It would now appear that neither Virgin nor the bank's own management team were prepared to offer this concession.